To identify the top performing manufacturers, the IW formula factored in revenue growth and profit margin over the past three years, with 2006 results weighted most heavily. We also considered three-year performance in four other financial ratios:
Inventory turns (cost of goods sold/average inventory): Indicates how frequently a manufacturer's inventory is sold over the course of a year. This measure varies dramatically by industry; operations with higher inventory turns will require less capital to finance their business.
Asset turnover (revenues/total assets): This ratio measures how efficiently assets produce sales. Comparing two companies in the same industry, the firm with higher asset turns is using its assets more productively.
Return on assets (net income/total assets): Another measure of asset utilization, ROA brings profitability into the analysis.
Return on equity (net income/shareholders' equity): ROE shows how successful management is at maximizing the return on shareholder investment in a company.
